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MATTHEWS v. PHOENIX MUT. LIFE INS. CO.

September 9, 1970

Kenneth MATTHEWS, t/d/b/a Golden Triangle Associates, Plaintiff,
v.
PHOENIX MUTUAL LIFE INSURANCE COMPANY, a mutual company, Defendant


Weis, District Judge.


The opinion of the court was delivered by: WEIS

A dispute between a life insurance company and a broker-agent regarding the duration of liability for commissions is the basis of this non-jury proceeding.

 In 1965, the Golden Triangle Associates was a partnership composed of Warren James, Leonard Pilarski and plaintiff, Kenneth Matthews. After acquiring a "broker of record" letter *fn1" from the Smaller Manufacturers Council of Western Pennsylvania, Golden Triangle developed two proposals of group life, accident, health, and hospitalization programs for the various company members of the Council. These plans were not well received and in the spring of 1966 Golden Triangle entered into an arrangement with the defendant, in conjunction with Blue Cross and Blue Shield of Western Pennsylvania, to provide an attractively priced plan of group insurance.

 On July 7 and 8, 1966 Warren James, one of the partners, and Dominic Casabona, an employee, of Golden Triangle, met with Dennis Hardcastle, a vice-president, and Jerry Campbell, a district group representative, of the life insurance company, in order to reach an agreement regarding commissions, renewal commissions and other details of the program.

 The meetings were spirited and apparently somewhat frustrating to Golden Triangle. It appears that Phoenix Insurance Company, by virtue of a multiple employer trust arrangement which it had had in effect for some years, was able to offer a lower premium than other competitive insurance companies. It, therefore, had no particular need to make any overly generous arrangements with Golden Triangle regarding commissions and renewals. On the other hand, the Smaller Manufacturers Council plan offered the defendant a good opportunity to sell to the some four hundred member companies, a not insignificant number, even to a large insurer. Additionally, the defendant was faced with the fact that Golden Triangle was "broker of record" and according to the business practice of the defendant was entitled to commissions on sales to the group if not due other Phoenix agents or recognized brokers by previous commitments.

 Hardcastle, the defendant's vice-president, advised James and Casabona that the insurance company did not operate through a general agency plan and, therefore, it did not grant overrides. A "field service fee" arrangement was suggested and tentatively agreed upon but was later modified by consent of both parties to provide that "If a broker or a Phoenix Mutual agent brings in a member firm outside those circumstances governed by the 'protection' guides above, the broker or agent receives 15%, and Golden Triangle Associates, the remaining 5%, first year commissions and the broker or agent receives 2%, and Golden Triangle Associates the remaining 1%, renewal commissions." *

 A letter dated July 8, 1966 was sent by Hardcastle to Golden Triangle confirming the oral agreement; the approval of the Smaller Manufacturers Council was obtained for the underwriting by Phoenix; and in August Golden Triangle and its partners individually were registered with the Insurance Department of Pennsylvania as agents of the defendant.

 Sales of policies began in September 1966 and the arrangements between the three parties continued until May 26, 1967 when the Smaller Manufacturers Council terminated its "broker of record" relationship with Golden Triangle. On May 31, 1967 the Court of Common Pleas of Allegheny County, in a suit filed by Warren James against Pilarski and Matthews, entered an Order dissolving the partnership and appointed a Master to wind up the affairs of the partnership. In September of 1968, pursuant to an agreement between the parties, an Order was entered dismissing the action with prejudice and directing the Master to deliver assets of the partnership to Kenneth Matthews, the plaintiff herein. Apparently the consent order was part of the arrangement agreed upon in September 1967 when James and Pilarski assigned their interest to Matthews.

 The question which is the heart of the dispute is whether the "override" type of commission arrangement is to continue for so long a period of time as Phoenix continues to write policies for member firms of the Smaller Manufacturers Council as plaintiff contends, or whether the arrangement terminated when Golden Triangle's "broker of record" authority was cancelled by the Smaller Manufacturers Council on May 26, 1967, as defendant maintains.

 The trial developed no evidence of an actual agreement between the parties on this important item. It is true that the plaintiffs asked for, and hoped to receive, a concession that "overrides" would continue so long as Phoenix continued to write the member companies of the Smaller Manufacturers Council but it develops that Phoenix felt strongly that its obligation to pay this type of commission to Golden Triangle should not last beyond the period of its authority as "broker of record".

 Despite the earnest arguments of both parties, the court is convinced that there was, in fact, no agreement reached between the parties on this particular point. There was no meeting of the minds and, in some aspects, not even an expression of intent. Golden Triangle contends that its side of the bargain was completely performed when the Council agreed to accept Phoenix and the plan was actually inaugurated. The evidence however fails to support this position. For example, the portion of the agreement quoted supra (p. 3) is silent on duration and the plaintiff produced no testimony that any person with, or without, authority agreed on behalf of Phoenix to pay these commissions indefinitely. By the same token, the defendant admits that it never specified that the override commission arrangement would continue only so long as the "broker of record" relationship existed. The defendant apparently relied upon custom within the industry but the court finds the evidence on this phase unconvincing.

 In the absence of provisions specifying the period for which the split or override commissions are payable, the court concludes that eligibility is measured by the duration of the contract between the principal and its agent.

 Because of the peculiarities of Pennsylvania insurance law, while a "broker" is recognized as an agent of the insured in the casualty and fire insurance fields and an "agent" is licensed as a direct representative of the insurer, no such distinction exists in the life insurance business. The Pennsylvania statutes specifically require that no life insurance may be written except by a licensed agent of the insurer. No provision is made for the legal status of a "broker" of life insurance. It is interesting to note that Golden Triangle Associates, even though dissolved, is still listed with the Insurance Department of Pennsylvania as an agent of the Phoenix ...


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